The standard and best known example of game theory in action is the Prisoner´s Dilemma, which gained its popularity thanks to a "real-life" story that represents the individual decision-making problem. The story can be framed like this:
Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge. They hope to get both sentenced to a year in prison on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to: betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent. The offer is:
- If A and B each betray the other (defect), each of them serves 2 years in prison
- If A defects B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa)
- If A and B both remain silent (cooperate), both of them will only serve 1 year in prison.
Game theory problems usually start from stories like this, and what game theorists do is to automatically represent the outcomes in matrixes. As you may see below, the matrix represents the payoffs of both players, with the left number as the payoff for B and the right number for A.
In the Prisoner´s Dilemma, from an individual point of view, it is always optimal to defect. No matter what the other player does, if I defect I get a better outcome than if I cooperate. Suppose that A cooperates, then if B cooperates he gets -1 while if B defects he gets 0 (then defecting is better). Suppose now that A defects, then if B cooperates he gets -3 while if he defects he gets -2 (defecting is better again). Game theorists call defecting (in this case) a strictly dominant strategy. It is individually optimal for both players to defect.
But what makes beautiful the Prisoner´s Dilemma is that although it is optimal for both players to defect, if both do so, they get an outcome of (-2,-2), while if they manage to cooperate, they would get (-1,-1). I find this situation simply fantastic because it easily illustrates a lot about human behavior. If both players do what is best for themselves, they both arrive to a situation that is worse than if they decide to cooperate, with the risk of being betrayed by the other one.
In game theoretic terms, (Defect, Defect) is the Nash Equilibrium, i.e. the stable situation that no player wants to abandon. As can be seen, nothing guarantees that a Nash Equilibrium is a good outcome for the players.
So, if (Cooperate, Cooperate) generates a better outcome for both players, what can we do as choice architects in our real-life problems to boost cooperation?
Behavioral game theory and experimental economics have demonstrated that people usually do not choose (Defect, Defect) and that there are techniques to generate more cooperation. Actually, we are irrational in a predictable way, so what if we try some of these ideas?
Repetition
If you make people play several times with the same partner and they do not know when the game is going to finish, it is possible to build conditional cooperation between them. For example, they can have trigger strategies (start cooperating and cooperate as long as the other one does the same). This type of strategy creates a different situation, in which players evaluate the whole set of payments and will choose the actions that maximize their lifetime outcome.
Framing
It may seem obvious but results in this game have been shown to be completely different if it is called Wall Street Game or Cooperation Game. If you have a real-life situation that resembles the Prisoner´s Dilemma, try to generate a context that promotes cooperation, rather than competitive behavior.
Social norms
It has been shown that people respond to what is usually done by most of the people. If you can find data like in previous cases, 70% of the people decided to cooperate, do not hesitate to let new players know it! You will be surprised about how decision-makers behavior will change towards a cooperation rate higher than 70%.
Private norms
People may also feel guilt if they are betraying their own values. Generate a context that make them realize about the selfishness of their actions and, probably, many of them will change towards a more sociably desirable behavior.
